Difference Between Corporation vs LLC
While one is trying to decide between business types that he wants to incorporate, most of the business owners will get perplexed between Corporation vs LLC. The latter will combine 2 kinds of business, that is corporation and partnership. While on another hand, the former would mean Incorporated (Inc), that represents the form of corporation, such as C Corp or S corp.
A Corporation and limited liability company (i.e. LLC) are 2 different company structures with unique tax requirements. It will not matter which entity type one will choose because being incorporated will add legitimacy to one’s business, specifically, the way one’s business will be perceived in the market.
A limited liability company (i.e. LLC) is a form of business structure which offers protection via personal liability as well as a few tax benefits. The “LL,” or say the limited liability, in the term LLC is what will protect one’s personal assets in the event of judgment going against one’s company. Traditional corporations further do offer limited liability which should be noted well.
Corporation on other hand is an artificial person which is a separate legal entity that is treated independently of its members (also called as shareholders), having its own obligations and rights, perpetual succession, limited liability and does hold property in its own brand name.
Head to Head Comparison between Corporation vs LLC (Infographics)
Below is the top 8 difference between Corporation vs LLC :
Key Differences between Corporation vs LLC
Both Corporation vs LLC are popular choices in the market; let us discuss some of the significant differences Between Corporation vs LLC :
- A private company, that will merge the combined features of a partnership firm or the corporation, is called Limited Liability Company or LLC. On other hands, Inc. is an acronym that will be used for term “Incorporated” and is also used as a suffix in the brand name of the corporations, which denotes a business entity that will be registered under the statue or the law.
- An LLC can be termed as a privately held corporation, but a corporation on another hand is a publicly traded corporation.
- The owners of the Limited Liability Company are the members, whereas the shareholders are the ultimate owners of a corporation.
- LLC will offer more flexibility than a corporation, there is no bar or say the limit on the maximum number of members in a Limited Liability Company, but on another hand, an S Corp. which is a type of corporation can have only hundred members.
- A corporation is subject to stringent record keeping and legal formalities. However, when one comes to Limited Liability Company the record keeping and the legal formalities is lenient.
- The best and the key feature of LLC is pass-through taxation as stated earlier, that is the income of the LLC will be taxable in the hands of its owners’ post distribution to them. To the contrary, a corporation will have to face double taxation, first, it will be taxed at the corporate level and then at an individual level, when the income or the profit is distributed to shareholders of the corporation as the dividend.
- The annual reports of a corporation should be submitted timely to the appropriate authority as per the requirements of the law. Unlike a corporation, LLC wherein the filing of annual reports or annual financial statements, with the appropriate authority is not required.
- The Annual General Meeting (i.e. AGM) should compulsorily and mandatorily be held by a Corporation that is Incorporated. As against this, the holding of an AGM is not mandatory, for an LLC or Limited Liability Company.
Corporation vs LLC Comparison Table
Let’s look at the top Comparison between Corporation vs LLC –
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| The basis Of Comparison Between Corporation vs LLC |
Corporation |
LLC |
| Basic Definition | Inc. will expand to the term Incorporation, that implies the legal process of creating a corporation. | A Limited Liability Company or LLC can be termed as a private company, that will incorporate the combined features of a partnership firm and a corporation altogether. |
| Owners | Shareholders are the major owners of the corporation | Partners or the LLC members can be said the owners. |
| Legal Formalities | To incorporate an Inc., one needs to go through a lot of legal formalities. | There are also legal requirements but comparatively lesser than a corporation. |
| Meeting requirements | Corporations are required to hold an annual general meeting and must be held within the time frame provided in the statue. | While LLC can also hold meetings but that’s Suo moto. |
| Law requirements | Corporation laws or statute will require a board of directors, quorums, meetings, minute keeping, and many other management “formalities”. | LLC laws or statue don’t require any of those formalities. |
| Income distribution | A corporation will distribute its income that it earned to its shareholders on a per share basis. | LLCs on other hand have greater flexibility in finalizing how to distribute its income or split their financial interests. An LLC can further distribute its income to every member based on their capital contributions, or equally or in many other ways. |
| Stock issuance | Corporations can offer and issue stock options and stock and further also as bonuses or incentives to managers and employees. | LLC cannot issue stock options or common stock. |
| Taxation | A corporation will be taxed for federal income tax purposes in either of the 2 ways. Further, it can be taxed either as an S corporation or a C corporation. | By default, an LLC with a single member will be taxed as if it is a sole proprietorship, and if an LLC has more than single-member than it will be taxed in a similar way as a partnership. Thus, LLC is treated as a pass-through entity. |
Conclusion
Corporation vs LLC both offers their unique benefits along with certain similarities and both Corporation vs LLC provide limited liability protection. As every coin has 2 sides, so as with corporation and LLC. In an LLC there is no limit on the count of members, the business income or profit will pass through the member’s personal income tax return. Further, it cannot issue common stock to raise the required funds from the marketplace. To the contrary, corporations will be authorized to make the public issue (i.e. IPO) and the splitting of corporate income, that lessens overall tax liability, but the cascading effect is present in the taxation of such legal entities.
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